Avoid Bankruptcy

If you plan to file a Chapter 7 bankruptcy in Nevada, you will need to pass the means test. This test is designed to check if a consumer has sufficient disposable income to repay his or her debts and it considers your total debt, necessary expenses, and income. The purpose of this test is to prevent higher-income people from filing a liquidation bankruptcy. If you cannot pass the means test, you may need to use a Chapter 13 bankruptcy to restructure and repay a portion of your debts.

How the Bankruptcy Means Test Works

The first portion of the means test compares your monthly gross income over the last 6 months to the median income in Nevada. This median income is updated annually. Because your monthly income is calculated as an average over the last 6 months, you may want to wait one or more months to file if you are over the median limit or your income has declined recently to bring your income below the allowed threshold. Once your monthly gross income is determined, the number is multiplied by 12 to determine your annual income and compare it to the Nevada median income limits.

In 2020, the median income limits are as follows:

• For a one member household – $4,370.75 monthly or $52,449 annually
• For a two member household – $5,479.67 monthly or $65,756 annually
• For a three member household – $6,238 monthly or $74,856 annually
• For a four member household – $6,794 monthly or $81,528 annually
• For a five member household – $7,544 monthly or $90,528 annually
• For a six member household – $8,284 monthly or $99,528 annually
• For a seven member household – $ 9,044 monthly or $108,528 annually
• For an eight member household – $9,794 monthly or $117,528 annually
• For a nine member household – $10,544 monthly or $126,528 annually
• For a ten member household – $11,294 monthly or $135,528 annually

If your monthly income is less than the median income in Nevada for a household of your size, you are presumed to pass the means test and are eligible to file Chapter 7 bankruptcy.

If your income exceeds the median income for your household size, deductions for medical expenses, housing, child care, and some other expenses can be used to determine your monthly net income. This second part of the means test determines whether you have enough disposable income left over after paying allowed expenses to pay at least a portion of unsecured debts. If your disposable income exceeds a certain amount, you will not be eligible for Chapter 7 bankruptcy.

Is Chapter 7 Bankruptcy Right for You?

Even if you pass the Nevada means test, bankruptcy may not be the right solution for you. An experienced bankruptcy lawyer in Las Vegas can help you compare Chapter 7 and Chapter 13 bankruptcy and how they apply to you to determine your best choice. If you have significant assets you want to protect, Chapter 13 may be a better alternative. With Chapter 13, all unsecured debt is rolled into one monthly payment that you pay for 3-5 years, at which point remaining unsecured debt is discharged. A Chapter 13 can help you remove junior liens from your property, such as a second mortgage.

Contact a Las Vegas Bankruptcy Attorney

The Nevada means test can be very complicated and a single mistake can result in the rejection of your bankruptcy petition. At Vegas BK, a Las Vegas bankruptcy attorney will help you understand how bankruptcy will affect you and whether you can pass the means test for a Chapter 7 bankruptcy.